Regular-Income Bonds, as the name suggests, are meant to provide a stable source
of income at regular, pre-determined intervals, examples are:

Fixed Rate Bond

Floating Rate Bond

Public Sector Bonds

Inflation Linked Bond

Bonds from Public
Financial Institutions

Money Multiplier
Bonds/Deep Discount Bond

Fixed Rate Bond

These Bonds carry fixed rate of interest which is declared at the time of issue
and remains same till maturity.

Floating rate Bonds

These Bonds carry interest rate which is linked to independent reference rates,
independent index, commodities etc. and the rate is fixed for next period at the
beginning of the period itself.

Deep Discount Bonds

This bond is issued at a discount to the face value. The face value is paid at the
maturity. These bonds are also know as Zero coupon bonds or "Zeros".

Public sector bonds

These bonds are medium and long term obligations issued by public sector companies
where the Government shareholding is 51% and more. Most of PSU bonds are in form
of promissory notes transferable by endorsement and delivery. No stamp duty or transfer
deed is required at the time of transfer of bonds transferable by endorsement.

Inflation linked bonds

These are bonds for which the coupon payment in a particular period is linked to
the inflation rate at that time – the base coupon rate is fixed with the inflation
rate (consumer price index-CPI) being added to it to arrive at the total coupon
rate. Investors are often loath to invest in longer dated securities due to uncertainty
of future interest rates. The idea behind these bonds is to make them attractive
to investors by removing the uncertainty of future inflation rates, thereby maintaining
the real value of their invested capital.

Bonds of Public Financial Institutions (PFIs)

Apart from public sector undertakings, Financial Institutions are also allowed to
issue bonds, that too in much higher quantum. They issue bonds in 2 ways – through
public issues targeted at retail investors and trusts and also through private placements
to large institutional investors. Usually, transfers of the former type of bonds
are exempt from stamp duty while only part of the bonds issued privately have this
facility. On an incremental basis, bonds of PFIs are second only to GOISECs in value
of issuance.

Retail bond issues of PFI bonds have become a big rage with investors in the last
three years. PFIs have also been offering bonds with different features to meet
differing needs of investors eg monthly return bonds (which pay monthly coupons),
cumulative interest bonds, step up coupon bonds etc

ICICI Infrastructure Bonds under Section 88
of the Income Tax Act, 1961

RBI Savings Bonds

RBI Savings Bonds are an instrument that are issued by the RBI, and currently has
two options – one carrying an 8 percent rate of interest per annum, which is taxable
and the other one carries a 6.5 percent (tax-free) interest per annum. The interest
is compounded half-yearly and there is no maximum limit for investment in these
bonds. The maturity period of the 8 percent (taxable) bond is six years and that
of the 6.5 percent (tax-free) bond is five years.

Tax Implications: In case of the 6.5 per cent RBI Savings Bond, the interest
received is completely exempt from income tax as per the provisions of the Income
Tax Act, 1961. But, In case of the 8 percent RBI Savings Bond, the interest will
be taxable under the Income-Tax Act, 1961 as applicable according to the relevant
tax status of the bondholder. RBI Savings Bonds are exempt from Wealth Tax. However,
there is no tax benefit on the amount invested in these bonds

Section 54EC Capital Gains Tax Exemption Bonds

Investments in bonds issued by the Rural Electrification Corporation (REC) and NHAI
are at present eligible for capital gains tax savings. Gains made out of a capital
transfer need to be invested in the above bonds within six months of sale of capital
assets in order for the proceeds of such sale to be exempt from capital gains tax.

REC Capital Gain Tax Exemption Bonds

Nomenclature

REC Capital Gain Tax Exemption Bonds

Face Value

Rs, 10,000/-

Mode of issue

Private Placement

Minimum Application

One Bond of Rs.10000/-

Maximum Application

500 Bonds of Rs.10000/- as per the conditions laid in the Finance Act, 2007

Mode of subscription

100% on application

Deem date of allotment

Last day of each month in which the subscription money is realized and credited
to REC account.

Coupon Rate &
Payment of Interest

6.00% (payable annually on 30th June) from the date of realization of cheque/draft
in account of REC. Ist interest will be payable on 30th June, 2009.

Tap Period

Upto 31st March, 2009. However, the corporation would have a right to close the
issue any time by giving a prior notice of 5 days in any two leading dailies.

Tenor

3 years from the deemed date of allotment.

Redemption

At par, at the end of 3 years from the deemed date of allotment.

Transfer

Non-Transferable

Nature of Security

English mortgage creating pari-pasu charge over REC’s immovable property and charge
on receivables of REC to the satisfaction of the trustee.

NHAI Capital Gain Tax Exemption Bonds

Credit Rating

“ AAA/Stable” by CRISIL ,“ AAA/ind” by Fitch Ratings and "AAA" by CARE

Face Value

Rs. 10000/- per Bond

Issue price

Rs. 10000/- per Bond

Minimum application size

Five Bonds of Rs. 10,000/- each and in multiple of one Bond thereafter.

Maximum application size

Five Hundred Bonds of Rs. 10,000/- each (Rs. 50,00,000 ) subject to fulfillment
of other conditions as specified in Income Tax Act.

Mode of Subscription

100% on application

Deemed Date of Allotment

Last day of each month for application money cleared and credited in NHAI’s collection
account

Transferability

The Bonds are non-transferable, non-negotiable and cannot be Offered as a security
for any loan or advance

Maturity

3 years from Deemed Date of Allotment

Interest payment

Annual

Coupon rate

6.00% Per annum

Redemption

Bullet, at the time of Maturity

Trustee

Syndicate Bank, 6, Bhagwan Dass Road, New Delhi-01

Availability of the prospectus
and application form

Across the country with NHAI offices, leading SEBI Registered Category-I Merchant
Bankers & Banks

Tax Implications: The main feature of the REC Bonds is that you can claim
Capital Gains Tax benefits benefit under Section 54EC of the Income Tax Act, 1961.
If you have realized any long-term capital gains, you can avoid paying tax on it
by investing the gains in the REC bonds. Such gains have to be invested within 6
months of realizing the same, and the investment has to be locked up for a minimum
period of 3-years. However, the interest that will accrue on this investment is
taxable.

Tax Saving Infrastructure Bonds

Infrastructure bonds are available through issues of ICICI Bank and IDBI, brought
out in the name of ICICI Safety Bonds and IDBI Flexi bonds. These provide tax-saving
benefits under Section 88 of the Income Tax Act, 1961, up to an investment of Rs.1,
00,000, subject to the bonds being held for a minimum period of three years from
the date of allotment. For instance, the tax-saving bond from ICICI Bank for the
month of August 2003 provides four options:

ICICI Bank Tax Savings Bond August

Options

I

II

III

IV

Tax Benefit Available

Sec 88

Sec 88

Sec 88

Sec 88

Issue Price (Rs.)

5000/-

5000/-

5000/-

5000/-

Redemption Period

3 years

3 years 4 months

5 years

5 years 4 months

Face Value

5000/-

6025/-

5000/-

6750/-

Interest Rate (%) p.a.*

5.75

Deep Discount Bond

5.75

Deep Discount Bond

Frequency of Interest payment

Annual

N.A

Annual

N.A

YTM (%)*#$ (with tax benefits)

12.0

11.0

9.7

9.1

Minimum Application

1 Bond

1 Bond

1 Bond

1 Bond

Similarly, the IDBI Infrastructure (Tax Saving) Bond (IDBI Flexi bonds - 17 Issue,
issued in January 2003) offers 4 options viz. Annual Interest (2 Options) and Cumulative
(2 Options). The minimum investment was Rs.5000/- only i.e. one bond for all options.
The investor has option to receive interest @ 7.25% p.a., payable annually for three
years or 7.50% p.a., payable annually for five years under the Annual Interest Option.
Under the Cumulative Option, the initial investment of Rs.5000/-, becomes Rs.6390/-
after three years and six months or Rs.7450/- after five years six months.

Tax Implications: According to Section 88 of the Income Tax Act, 1961, subscription
to the Tax Saving Bond would entitle Individuals and HUFs to a rebate from Income
tax as indicated below:

Gross Total Income (Rs)*

Rebate

0 – 150,000

20%

150,001 – 500,000

15%

500,001 & Above

Nil

Rebate under section 88 is available on the aggregate
of the sums paid or deposited up to Rs.1,00,000/-, including subscription to Tax
Saving Bonds of the Issuer Company.

An individual would be entitled to an enhanced rate
of rebate @ 30% if his income chargeable under the head “salaries” does not exceed
Rs.1,00,000 before allowing deduction under section 16 and is not less than 90%
of the gross total income subject to provisions under section 88 of the Income-tax
Act.